How Does Shared Ownership Work and Is It Worth It?

The dream of owning a home is out of reach for many people in the UK due to the increasing property prices, especially first-time buyers who struggle to save enough amount in order to pay a deposit to buy a house or flat outright. Shared ownership in the UK addresses this pressing issue and has been introduced as a housing scheme that aims to bridge this affordability gap. But how does shared ownership work, and is it a worthy option for prospective homeowners?

Shared Ownership Explained

Shared ownership is a government scheme to help people in the UK, especially first-time buyers to get on the property ladder. It offers a part-buy, part-rent solution making the process of buying a shared ownership property more flexible and affordable. Here’s how it works:

• Initial Purchase: The first step in shared ownership is purchasing a share of the property. Typically, you can buy between 25% and 75% of the property’s value. The share you purchase is funded through a mortgage or savings.
• Rent on the Remainder: On the remaining share of the property, you will pay rent to a housing association. The rent is usually below the market rate, making it an attractive option for those struggling to enter the property market.
• Staircasing: As your financial situation improves, you have the option to buy a larger share of your property. This process is known as “staircasing”.
• Leasehold: Shared ownership properties are typically leasehold, which means you’ll have a lease that specifies your rights and responsibilities as a homeowner. You may need to pay ground rent, service charges, and maintenance costs, so it’s essential to factor these into your budget.
• Eligibility: Shared ownership is not available to everyone. Priority is for the first-time buyers and also there will be a maximum income threshold or in some cases, a former homeowner who can no longer afford to buy a property.
• Resale: If you decide to sell your shared ownership property, the housing association has the right of first refusal. This means they have the opportunity to find a buyer before you sell it on the open market.

Is Shared Ownership Worth It?

The worth of shared ownership can vary significantly depending on your choices and long-term goals. Before deciding whether shared ownership is a suitable choice for you consider the below-mentioned factors.

• Affordability: Shared ownership is an excellent choice for those who can’t afford to buy an entire property. It allows you to get on the property ladder with a smaller initial investment. However, it is still important for you to meet the mortgage criteria for the share you wish to buy.
• Monthly Costs: The combined monthly costs of your mortgage, rent, and service charges should be compared to the cost of renting a similar property. Shared ownership can be more cost-effective in the long run, but it’s crucial to make these calculations to ensure they align with your budget.
• Stability: Shared ownership offers a sense of stability that renting does not.
  You’ll enjoy the secure feeling of having your own place to live,  and free from the fear of eviction due to a landlord’s choice to sell the property or increase the rent.
• Staircasing: The ability to buy more shares in your property can be a significant advantage. As your income increases, you can gradually work towards full ownership and reduce your monthly rent payments.
• Resale Restrictions: The requirement to offer your property to the housing association first when selling can be a drawback. It may limit your options and potentially affect the resale value of your home.
• Limited Choice: Shared ownership properties can be more limited in terms of location and type, as not all properties are available through this scheme. You may have to compromise on the area or type of property you desire.
• Eligibility Constraints: Not everyone qualifies for shared ownership. Income restrictions and other eligibility criteria can exclude certain individuals. It’s crucial to check if you meet these requirements before considering shared ownership.
• Market Value: The market value of your property may rise over time, affecting the cost of purchasing additional shares. This can be both an advantage and a drawback, depending on the market conditions.
• Long-Term Goals: Shared ownership may be a good stepping stone for those who plan to eventually buy their property outright.

Before making a decision, it’s crucial to carefully assess your affordability, compare monthly costs, and consider your eligibility. It’s necessary to get checked with financial and legal experts. Shared ownership is undoubtedly a helpful tool, but like any investment, it should be approached with careful consideration and a thorough understanding of its implications.